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Investing.com -- German industrial production experienced a significant decline in February, dropping by 1.3% month-on-month, a figure worse than the expected 1.0% decrease, according to data released by the federal statistics office on Monday.
This fall in production erased a significant portion of the 2.0% expansion seen in January. The decline in output was primarily due to decreases in construction, which fell by 3.2%, and energy production, which dropped by 3.3%. Manufacturing output also saw a reduction, falling by 0.5%.
Though German industrial output has stabilized over the past six months and manufacturing activity surveys have shown some improvement, the overall output remains low compared to pre-pandemic levels. The short-term outlook for the industry has also worsened.
According to Capital Economics, expected impact of US tariffs on German manufacturing is a concern. The US market contributes to about 7% of German manufacturing value added, and the sector is likely to be significantly affected by these tariffs.
The sectors that will be most impacted are chemicals, metals, machinery, and autos, as the US accounts for a larger share of demand in these sectors, Capital Economics warned.
Moreover, the higher US tariffs imposed on China and some other Asian economies could potentially lead to an influx of cheaper imports, which may undercut German producers. This situation could negate any positive effects from lower gas and energy prices.
With a new government not expected to take office until May, any fiscal stimulus and increased production of defense goods will likely not occur until next year.
Given these circumstances, Capital Economics anticipates a potential further contraction in German industrial output in the remainder of this year.
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